Blockbuster Agrees to Be Bought for $290 Million by Group of Debt Holders
Blockbuster Inc., the bankrupt movie rental chain, agreed to be bought by a group of debt holders for as much as $290 million as part of a bankruptcy auction.
The Dallas-based company said the bid from Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Värde Partners Inc. would set the minimum at an auction. The company will seek approval for the plan from U.S. Bankruptcy Judge Burton Lifland in Manhattan at a hearing scheduled for March 2.
The sale will “allow for the consolidation of ownership of the company to those with a clear and focused vision for Blockbuster’s future,” Chief Executive Officer Jim Keyes said in a statement.
The group, called Cobalt Video Holdco LLC, which holds more than half of Blockbuster’s $630 million in 11.75 percent senior secured notes, made no commitment to continue the business. A provision in the agreement gives Cobalt the right to compel a conversion of the Chapter 11 reorganization case to a Chapter 7 liquidation. The contract also calls for Blockbuster to begin closing 609 stores by Feb. 28. The group can also compel a liquidation of the inventory at any stores it doesn’t elect to take.
Cobalt plans to buy all Blockbuster assets and its U.S. and international subsidiaries, according to the statement. If the plan is approved, interested bidders are required to submit binding offers within about 30 days following court approval. A final sale is expected to close no later than April 20, the company said.
As part of the deal, administrative expenses, other than critical expenses, incurred during the bankruptcy before Feb. 24 will be frozen, according to court papers. After Feb. 25, expenses will be paid only if provided in a budget. The sale contract also requires the court to bar creditors from taking any action at collecting on a claim before June 21.
In papers filed last week, Blockbuster said there is a “possibility” it won’t be able to pay all suppliers for goods provided after the Chapter 11 filing.
One supplier, Summit Entertainment LLC, said earlier this month that Blockbuster can’t pay $1.6 million owed for DVDs of “The Twilight Saga: Eclipse” and other bills and should be liquidated. Summit, an independent production and distribution studio, is owed $9.5 million, according to court papers filed Feb. 3.
Blockbuster filed for bankruptcy on Sept. 23 with the outline of a reorganization plan supported by senior bondholders. The effort failed, and the company blamed poor holiday sales and deteriorating business operations. The plan hashed out with a leading group of debt holders was not “feasible,” the company said in court papers.
Blockbuster entered bankruptcy with 5,600 stores, including 3,300 in the U.S. Among the U.S. stores, 3,000 are owned and the rest franchised. About 200 stores closed before bankruptcy.
The company, which last reported a profit in the first quarter of 2009, posted a net loss of $53.5 million on sales of $736.6 million in the third quarter of 2010. Cash and cash equivalents stood at $66 million as of Jan. 2, the company said in court papers.
The bankruptcy petition listed assets of $1.02 billion against debt of $1.46 billion. The company said owes $57 million in accounts
Blockbuster said in September that sales fell in recent years while Netflix Inc. grew by renting movies online and through the mail, and Coinstar Inc. put Redbox DVD vending machines in supermarkets and drugstores.
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